TiVo's new president wants to play nice with advertisers, cable

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What does TiVo have in common with Q-Tips and Intel? Quite a lot, I'd say.

Like Q-Tips, TiVo now is an almost generic name for its product category-not cotton swabs but digital video recorders-with all the pluses and minuses associated with that. Like Intel, its future success largely depends on positioning itself as a branded ingredient that enhances another product (in this case, not the guts of personal computers but the insides of TV set-top boxes).

The question isn't, "Can DVRs reach critical mass?" They will, and that will transform the business models of the advertising and media industries. The latest forecast puts DVRs in 20% of U.S. homes by 2007. Based on that, the CEO of a major marketing company told me he's set 2007 as the deadline for remaking his business mix to account for the impact on TV advertising. The question is whether TiVo will be a leading DVR player when that happens.

Marty Yudkovitz is a longtime NBC executive who became president of TiVo in April. He knows his company can't rely solely on stand-alone DVRs, a market it currently dominates with about an 80% share. To remain a leading player, the software marketer has to grow its satellite TV base and convince the cable industry that "TiVo inside" can help cable gain and retain subscribers, and wring more revenue from them. He's focused on premium services that allow TiVo to stand for more than basic DVR functionality, since cable companies can offer that on their own.

TiVo, he argues, can be used not just to skip ads but to enhance them-with targeting, long-form content, audience measurement and interactive capabilities. His strategy is to enlist the support of marketers, ad agencies and media specialists, and convince them that, if DVRs are inevitable, TiVo is the most ad-friendly solution. If they buy in, they can pressure broadcasters, cable operators and satellite TV providers to work with TiVo.

"There's great resistance," Yudkovitz candidly admits. "The entrenched economics of the business models make it such that change comes around slowly." He notes similarities to early resistance to cable TV, and said the lessons learned there also apply: "Those who fought it lost ground"; and "It didn't ruin the business model, it changed it."

Ad industry resistance to DVRs comes from true skeptics but also from the "not-on-my-watch" crowd, which wants to at least slow consumer adoption of the technology. Winning over cable systems is also a tremendous challenge. Although they recently embraced DVRs, most are developing their own versions. Yudkovitz believes they view TiVo's strong brand as a liability, fearing the service could grow arrogant and make unreasonable financial demands. "We have to cede control" to them, he admits. TiVo is also closely linked to satellite TV provider (and cable rival) DirecTV.

TiVo will pass 1 million subscribers by year-end, half through satellite TV and half through stand-alone boxes. It still believes in stand-alone boxes, including new ones that combine DVR software with DVD players/recorders. It hopes to grow with DirecTV after Rupert Murdoch completes his acquisition of it. And Yudkovitz still wants to cut deals with cable systems. ("It is not early," he concedes, "but, fortunately, it is not too late.")

TiVo employs a sales force to offer "enhanced" advertising to automakers and movie studios. Yudkovitz wants cable companies and networks to take over that role.

He's on a door-to-door mission to win support for DVRs and change perceptions of TiVo. "I'm trying to close the gap, and create awareness that there is an upside."

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